Wilding within a Tame Index
Although the S&P 500 index has gone sideways in recent weeks, there is a lot going on under the hood.
The long dominant technology sector finally took a hit. The tech-laden Nasdaq index closed in correction territory on Monday, down 10.5% from the February 12th high. And while technology stocks were correcting, cyclical plays in energy and finance accelerated their upward thrust.
The Financial Sector SPDR Fund (XLF) was up 5.6% during the tech selloff and the Energy Select Sector SPDR Fund (XLE) moved up 15%.
Energy and finance have been outperforming technology, and every other sector of the market, since the vaccine announcement in November promised to unleash a full recovery and a Main Street rebound in 2021. But the rubber hit the road in recent weeks and the outperformance accelerated.
Then yesterday, technology had a huge rebound. The Nasdaq spiked 3.7% in one day, the best day for the index since November. Investors seized upon the dips in technology stocks. The Nasdaq is up again today so far, while financial and energy stocks are regaining what they lost yesterday as investors focused on technology.
Now what?
It could be that the recent surge in cyclical stocks is almost out of gas and technology will take over again after the overdue correction is out of the way. On the other hand, cyclical dominance could continue for longer. After all, energy and technology shares have a lot of lost time to make up for. Only time will tell.
Big moves are taking place despite the seemingly tame market index. We seem to be at a tipping point, where either recent trends will show staying power or new ones will emerge. Be sure to be watchful for trade alerts in your email as opportunities will likely emerge as the market’s future direction tips its hand in the days and weeks ahead.
Trades this month
February 10th
Sold VLO March 26 $60 call at $6.50 or better
February 19th
BGS February 19 $27.50 call at $2.40 - Expired
B&G Foods (BGS) stock – Called
Sold CVX April 1 $95.50 call at $4.30 or better
February 24th
Purchased NextEra Energy stock (NEE) - $73.76
Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 8.8%
Rising interest rates and an improving economy? That situation is a mortgage REIT’s natural habitat, where it thrives. These securities are not very good long-term investments. Sometimes they are good to own and sometimes they’re not. This is a good time. Let’s just collect that fat monthly dividend for now. The price should continue to trend higher and we’ll write a call at a higher price when we can be assured of a juicy total return. BUY
Brookfield Infrastructure Partners (BIP) Yield 4.0%
This infrastructure partnership stock has been in a state of suspended bouncing around. That’s okay. It’s holding its own an not losing ground while the utility sector is stinking up the place. BIP will have its day again. It has defensive and reliable earnings that should grow nicely this year as its more cyclical assets rebound and new acquisitions from last year come online. The infrastructure sector might get hot too as the U.S. government eyes new projects. And BIP is the best of the best. Let’s wait for a higher price to write the calls. BUY
Chevron Corp. (CVX) Yield 4.7%
I keep waiting for the recent price surge to run out of gas. But CVX just keeps on going. It’s up 30% since February 1st. I fully expected CVX to get back to the pre-pandemic levels in the 120s (currently 110 per share) at some point this year, and likely even exceed that as the environment should be better on the other side of the pandemic than it was before. But I didn’t expect CVX to get that done in one fell-swoop. The stock stayed depressed for far too long and now the market is making up for lost time. HOLD
Digital Realty Trust, Inc. (DLR) Yield 3.4
This data center REIT is still floundering and stinking up the place. It was a sensational performer through the pandemic. But the market has been giving this pandemic beneficiary the cold shoulder during this cyclical stock bender. Nevertheless, while the market chases other girls around the positive story is still intact. The growing number of connected devices and demand for technology infrastructure is rising steeply. Consider that energy and financial stocks were wallowing in oblivion a few months ago. Look what’s happening to them. BUY
NextEra Energy Inc, (NEE) Yield 2.1%
The recent market bias toward cyclical stocks has been so extreme that not only did the utility sector get beaten up, but the mania even took down NEE, which had previously been immune to struggles in the sector. The natural state of this alternative energy utility is to be an up-trending juggernaut. This recent diversion from the mean should be temporary. The stock bounced back from the recent lows quickly in the past several days. The market could undo this latest aberration quickly at some point. A little patience should pay off. BUY
Valero Energy (VLO) Yield 4.9%
Ditto everything I said about CVX above. VLO pulled back yesterday as the tech rally took over. But it’s rebounding and recouping all that downside today. VLO is also a higher leverage play on a recovery than CVX. It tends to move more and faster. It’s also still farther below the pre-pandemic high than CVX. We’ll see how far this surge takes it. But it should be destined to at least get back to pre-pandemic levels in the weeks or months ahead. BUY
Existing Call Trades
VLO March 26 $60 call at $6.50 or better
This stock ran away. After a recent surge of over 40%, the options are now priced a million miles over the target price at 17.32. There seems to be zero chance that the stock will crash more than 20 per share in the next nine days and close below the strike price. The stock will almost certainly be called on the 19th. But the portfolio position will still provide a return of 27.4% since being added to the portfolio.
CVX April 1 $95.50 call at $4.30 or better
It’s the same story here. The stock has run away, and the options are now priced well over the target at 14.20. I didn’t see the massive, short-term move in the energy sector coming. But this position will still provide a strong return and income in a short period of time.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 16.35 | 17.00 | 8.81% | 6.94% |
| Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 52.27 | 53.00 | 3.95% | 4.25% |
| Chevron Corp. | CVX | 12/23/20 | 85.69 | 109.50 | 93.00 | 4.71% | 29.56% |
| Digital Realty Trust | DLR | 1/27/21 | 149.17 | 135.08 | 155.00 | 3.44% | -9.45% |
| Valero Energy Corp. | VLO | 8/26/20 | 53.70 | 76.58 | 60.00 | 4.87% | 47.37% |
| NextEra Energy, inc.# | NEE | 2/24/21 | 73.76 | 74.02 | 80.00 | 2.08% | |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Buy Under or | Total Return |
| VLO Mar 26 $60 call | VLO210326C00060000 | Sell | 2/10/21 | 6.50 | 17.32 | 6.50 | 12.10% |
| CVX Apr 1 $95.50 call | CVX210401C00095500 | Sell | 2/19/21 | 4.30 | 14.20 | 4.30 | 5.02% |
| As of Close on 2/22/21 | |||||||
| SOLD STOCKS | |||||||
| Security | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | 87.82 | 9/18/20 | 100.00 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | 89.14 | 9/18/20 | 95.00 | 7.30% |
| U.S. Bancorp | USB | Called | 7/22/20 | 36.26 | 9/18/20 | 38.00 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | 41.92 | 10/16/20 | 45.00 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | 82.41 | 10/16/20 | 88.00 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | 200.56 | 11/20/20 | 200.00 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | 91.04 | 12/31/20 | 100.00 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | 18.14 | 1/15/21 | 20.00 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | 39.66 | 1/15/21 | 40.00 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | 44.68 | 1/15/21 | 45.00 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | 26.79 | 2/19/21 | 28.00 | 4.42% |
| EXPIRED OPTIONS | |||||||
| Security | In/out money | Sell Date | Sell Price | Exp. Date | $ return | Total % Return | |
| IIPR Jul 17 $95 call | out-of money | 6/3/20 | 3.00 | 7/17/20 | 3.00 | 3.40% | |
| MO Jul 31 $42 call | out-of-money | 6/17/20 | 1.60 | 7/31/20 | 1.60 | 4.03% | |
| ABBV Sep 18 $100 call | out-of-money | 7/15/20 | 4.60 | 9/18/20 | 4.60 | 5.05% | |
| IIPR Sep 18 $100 call | in-the-money | 7/22/20 | 5.00 | 9/18/20 | 5.00 | 5.69% | |
| QCOM Sep 18 $95 call | in-the-money | 6/24/20 | 4.30 | 9/18/20 | 4.30 | 4.82% | |
| USB Sep 18 $37.50 call | in-the-money | 7/22/20 | 2.00 | 9/18/20 | 2.00 | 5.52% | |
| BIP Oct 16 $45 call | in-the-money | 9/2/20 | 1.95 | 10/16/20 | 1.95 | 4.65% | |
| SBUX Oct 16 $87.50 call | in-the-money | 10/16/20 | 3.30 | 10/16/20 | 3.30 | 4.00% | |
| V Nov 20 $200 call | in-the-money | 9/22/20 | 10.00 | 11/20/20 | 10.00 | 4.99% | |
| ABBV Dec 31 $100 call | in-the-money | 11/18/20 | 3.30 | 12/31/20 | 3.30 | 3.62% | |
| EPD Jan 15 $20 call | in-the-money | 11/23/20 | 0.80 | 1/15/21 | 0.80 | 4.41% | |
| MO Jan 15 $40 call | in-the-money | 11/25/20 | 1.90 | 1/15/21 | 1.90 | 4.79% | |
| USB Jan 15 $45 call | in-the-money | 11/25/20 | 2.00 | 1/15/21 | 2.00 | 4.48% | |
| BGS Feb 19 $27.50 call | in-the-money | 12/11/20 | 2.40 | 2/19/21 | 2.40 | 8.96% | |